Joshua Rosner

Weekly Read: Reckless Endangerment

July 22, 2011: 5:00 AM ET

Welcome to the Weekly Read, a new column that will feature Fortune staffers' takes on recently published books about the business world and beyond. We've invited the entire Fortune staff -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. Each week we'll feature a different staffer's review. This week Nina Easton takes a look at Gretchen Morgenson's and Joshua Rosner's Reckless Endangerment, which points the finger at a few culprits behind the financial crisis who slipped under the radar.

FORTUNE -- Behind every national crisis is a narrative that assigns blame and offers up lessons learned. But this first draft of history, drawn from popular media assumptions, often turns to be superficial -- even wrong. Such is the case with the 2008 financial collapse.

Reckless Endangerment, by Pulitzer Prize-winning New York Times business reporter Gretchen Morgenson and financial consultant Joshua Rosner, upends the widely held belief that George Bush and Wall Street greed combined to bring down the world economy. The book offers an alternate list of culprits -- one that doubles as a grand tour of the Democratic Party's power structure.

Yes -- President Obama is right when he complains that he inherited this mess; he's just wrong about who he inherited it from.

Front and center in the authors' hall of shame is a figure who has largely escaped scrutiny: Former Fannie Mae CEO James A. Johnson, power broker, friend to presidents, Kennedy Center chair. From 1991 to 1998 -- before he was succeeded by Franklin Raines -- Johnson transformed Fannie Mae into the engine behind Clinton-era "homeownership for all" policies -- enthusiastically backed by the President, Treasury Secretary Robert Rubin, housing secretaries Henry Cisneros and Andrew Cuomo, and House Banking Committee Chair Barney Frank, among others. "Flexible" lending standards designed to get more people in homes became the Fannie Mae template that led to a rash of subprime mortgages-and a housing crash.

Along the way, the authors write, Johnson and his mostly Democratic cohorts at Fannie Mae threatened enemies and regulators who questioned the behemoth's "affordable housing" initiatives, while rewarding supporters (spending $100 million on lobbying and campaign contributions between 1989 and 2009). Johnson courted Countrywide Financial CEO Angelo Mozilo, "founder of the mortgage lender that became synonymous with subprime" and instituted a fabulously rich bonus system at Fannie Mae (the authors estimated he earned $21 million in 1998 alone, and the agency later came under investigation for accounting fraud).

The authors cite plenty of "enablers" in this saga: Investment banks whose spigot of money flowed through mortgage lenders, Fed chief Alan Greenspan's monetary policies, a 1986 tax change that led millions of homeowners to run up consumer debt on home equity loans, and the fall of the Depression-era Glass-Steagall wall between bank operations, a 1999 change resulting from an alliance of Republican lawmakers and Clinton officials like Rubin (who went on to take advantage of the law's change at Citicorp (C)).

But they make clear that the financial collapse, the result of a dangerous housing bubble, would not have happened without Fannie Mae leading the way in relaxing underwriting standards and eliminating traditional due diligence -- all in the name of expanding homeownership.

Reckless Endangerment lacks the rich story-telling style, or interviews with principals, that could have made the book a gripping read. That's too bad, because it will limit the audience for this important contribution to financial history. More Americans need to know the story of Fannie Mae and Freddie Mac, which were largely absolved of blame by the Democratic majority on the Financial Crisis Inquiry Commission. More people need to read about figures like Johnson whose only "punishment" so far is that he hasn't been named Treasury Secretary and was dropped from candidate Obama's vice presidential search team.

And more people need to read this book before they hear the name "Dodd-Frank," short-hand for President Obama's sweeping Wall Street reform bill, so that they can fully appreciate the "irony of having two of the nation's most strident defenders of Fannie Mae" sponsoring legislation designed to prevent the next financial meltdown.

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